Due Upon Receipt vs Net 30 - What are the best invoice payment terms?
Late paying clients are one of the biggest headaches faced by freelancers and contractors.
Chasing up payment takes valuable time when you could be working on projects. Worse, worries over whether or not you'll be paid can take over your thoughts, leaving you performing below peak.
Knowing what's normal when it comes to getting paid by clients can be a big weight off your mind. Realistically, how long should you wait to expect payment for an invoice?
The Short Answer…
You can expect to be paid within the timeframe you've agreed with your client.
In other words, you should let clients know a deadline for payment, and you can expect to be paid by your deadline. Clients who pay promptly are showing respect for your work and your professional relationship.
Occasionally, clients will have a good reason for breaking your payment terms. A one-off late payment from a regular client isn't a reason to lie in bed awake at 3am. But in general, if your client doesn't pay up by the date you've agreed, then they're not treating you with the respect you deserve. If you've got a contract with them, they could be breaking the terms of that contract.
When clients break your payment deadlines, then it's absolutely fair to charge them interest on the late payment. Good clients pay promptly within the time you've agreed.
Clients that fail to pay promptly will often prove difficult to work with in other ways. They'll likely be overly demanding, or have unrealistic expectations of what you can do for them.
That's why it's a good idea to let clients know what you expect in terms of payment before you start working with them. If they're not happy with what you expect, then they can say so before you've already devoted time and energy to their project.
How to Prepare Your Clients to Pay Promptly
The best way to make sure you'll be paid promptly is to set out your terms of payment from the start.
In your early conversations with new clients, mention the payment terms you expect. You don't have to be forceful about this, It can be as simple as asking the question: "Most clients pay me within 15 days of a project's completion. Is that okay with you?" You can expect a "Yes, that's okay", or a reasonable explanation of why that's not possible. Shifty body language, coughing, or lame excuses are not a good sign.
Other ways to manage expectations around payment include:
- Asking for a percentage of your fee upfront.
This is good for your cashflow. It also gives you an idea of how prompt the client will be at paying your later invoices. If your client breaks the payment deadline for this upfront fee, then it's worth reflecting on whether the project is for you.
- Prepare a contract that includes payment terms.
This makes it easier to pursue payment if things go wrong. Legitimate clients who plan to pay you promptly should be happy to sign on the dotted line. It's worth getting legal advice so you can prepare a contract that's legally binding.
Now you know how to manage client expectations, let's look at the two main terms of payment most freelancers use.
Due Upon Receipt
Invoices that are due upon receipt are exactly as they sound. You're expecting to be paid as soon as possible after your client receives the invoice.
In my experience, Due Upon Receipt invoices work well for small projects, and clients usually pay within 24 hours.
If you send out invoices that are due upon receipt, then you should make sure you offer an easy way clients can pay immediately. PayPal or Stripe both work well, and allow clients to pay by credit card.
Immediate payment means you're not left waiting to be paid for work you did weeks or months ago.
The main disadvantage to using Due Upon Receipt invoices is that they can come as a surprise to your client. As such, they give your client no time to make sure they've got the money in their account to pay you.
Another disadvantage is that clients may read "Due Upon Receipt" as "Due whenever I can pay". By not specifying a payment deadline, you give your client wiggle room to delay payment.
Payment Deadline (Net D)
Don't be intimidated by the terms — "Net" is just invoice-speak for "days".
Net D invoices let clients know when they're expected to pay an invoice. "Net D" refers to the number of days a client has once a project is completed to submit payment. The letter "D" is replaced by a number of days.
For example, an invoice that states "$1,000 net 15" means that you expect payment of $1,000 within 15 days of you completing the project.
Typically, Net D invoices are due within 10, 15 or 30 days.
The main advantage of Net D invoices is that they give your client time to get enough money in their account to pay you. They're left with little excuse for late payments. That said, if you send out your invoice too early, it may slip your client's mind, so you'll need to send a reminder close to the due date.
Not all clients will know what "Net D" means on an invoice. It's worth including a note in the invoice that Payment is due within D days of project completion.
Discounts and Late Fees
Invoices not due immediately should offer discounts as incentives for early payment.
Using Cashboard data, we've proven that offering a pre-payment discount results in faster invoice payment than ones without…
Similarly, assigning a late fee to invoices for overdue payments can motivate your customers to pay you on time, and is another best practice we recommend.
I'd love to hear about your experiences of submitting invoices.
How long do you expect to wait for payment after sending an invoice? What do you do about late paying clients?
comments powered by Disqus